Observing that natural resources belonged to the state, which is a trustee of its citizens, the court ordered that a part of the profits from the sale of iron ore be set aside for a permanent fund, to be set up in six months. The government will only be able to access the interest from this fund, not the capital. This money is to be used for sustainable development and inter-generational equity.
This fund, proposed by the petitioner Goa Foundation, is modelled on the sort of endowments that already exist in Norway and Alaska. Both these territories have attempted to preserve the value of their non-renewable natural resources for future generations in the form of a permanent fund that can never be diluted. Norway’s sovereign wealth fund, started in 1990, is currently valued at around $818 billion.
It is unlikely that the Goan Iron Ore Permanent Fund will ever be as vast. For one, the court ordered companies to contribute only 10% of their profit on sales of ore to the fund, instead of the 50% proposed by the Goa Foundation. According to calculations by the foundation, the region's ore reserves, estimated at around 66 million tonnes, would have lasted only around nine years at the rate at which mining was proceeding before it was halted in 2012.
“The court’s priority was inter-generational equity,” said Claude Alvares, executive director of the Goa Foundation. “We initially suggested that ore extraction should be spread over 100 years, which would suffice for three generations. However, the fourth generation would then have zero ore and get nothing.”
That is when they realised that the Norwegian model could be an option, and they pitched this to the expert committee appointed by the Supreme Court to look into the matter.
“This is the first time [in India] such a fund has been created to protect the value of natural resources,” said Alvares. “If this gets extended to other states, as natural resources get depleted, the value of those resources can be put into funds.”
The crucial aspect of this fund is that the capital can never be touched and will be held in trust for the people. In the closest precedent, the Supreme Court last April set up a special purpose vehicle for mines in Karnataka. The body drew revenue from fines, cancelled leases and sales proceeds, and was directed to use the entire amount to benefit people living in Bellary, Chitradurga and Tumkur.
Mining is one of Goa’s largest industries. About 1.5 lakh people work or have heavily invested in the industry. This includes labourers in mines and others who sold valuables to buy trucks to transport ore after the industry boomed in the early 2000s. Despite Goa’s poor quality iron ore – so poor that Indian manufacturers do not have the equipment to process it – mining increased in the state after a surge in demand from China.
The court permitted mining to resume only because the livelihoods of so many people was at stake. However, it has capped annual production of iron ore at 20 million tonnes per year, compared to 41.1 million tonnes in 2011, and 14.6 million tonnes in 1941. This is to help monitor environmental parameters to study the effect mining has on the environment.
The roots of this controversy go back to 1961, when the Portuguese were forced to flee their colony of Goa. The Portuguese government had granted permanent land rights to certain mining companies. Two years later, the Indian government attempted to dilute these concessions. After an unsuccessful court battle, the government in 1987 passed the Goan, Daman and Diu Mining Concession Act, and officially converted all concessions into 20-year leases.
All 118 leases expired in 2007 as the Goa government neglected to explicitly state that there was further need for mining. As a consequence, the Supreme Court ruled that all mining activities after 2007 was illegal. All ore mined after that, the order said, is government property, and proceeds from that sale are to be added to the permanent fund. Mining companies will now have to apply for fresh licences from the Goa government.
Alvares said that the Goa Foundation will now push for the government to nationalise all mining activities in the state. “As the ore gets depleted, the fund will keep increasing,” he said. “Once the state is involved, they can put up to 80% of their sales into the permanent fund. No nationalisation is required now, because no leases are valid.”